Core value drivers
Whilst there is a well established ‘corridor of value’ for financial planning firms, there are certainly some things you can be doing now to reach the higher multiples at the point of sale or exit and often, more importantly, to have your pick of the buyer market.
Make sure you give full consideration to the following points:
- A best in class client service proposition and defined systems and operations. Being able to articulate your service, systems and operations is the first essential step to getting in front of quality buyers. This can be notoriously hard for small owner-managed businesses as more time can often be spent working ‘in’ the business rather than ‘on’ it. Taking time out to rebalance this (by attending The WOWW! ® By Design Development Programme™ for example) is essential in the years preceding a business sale.
- Profitability per client. Just like your clients, every buyer is looking to make a return on their investment. Therefore, how profitable each client is, or simply put, the size of their invested assets, will be a core criterion for almost every buyer. Apportioning your service offering to ensure that you are offering an appropriate service level to low net worth clients is important. And that you can demonstrate it.
- A defined investment proposition. How financial planners develop their investment proposition is much debated within the industry – everyone has a different way of doing things. However, bearing in mind my first two points, your investment approach should be consistent, clear and auditable. Financial planning and investment management are two separate disciplines. If you are picking funds for a significant number of clients be prepared for a greater level of scrutiny during a due diligence process with a prospective buyer in future. The reality is that, post-sale, this will be managed by an investment specialist. Good comes in many forms, but at the core should be a strategic rationale, clearly defined execution and a consistent approach.
- Your team structure. How you have built your team and how client relationships are managed can make your business more – or less – desirable to a buyer. Put simply, a team of self-employed advisers makes transactions complicated, reducing the pool of interested buyers. Equally, if client relationships are concentrated within a small number of individuals, who don’t own the company, a buyer may question where the intrinsic value of the business lies and what you actually have to sell. Conversely, clients who are used to multiple touch points and a high level of service are more likely to associate their relationship with the business than a single adviser, and therefore transition to a new organisation. This makes your business more attractive to a buyer. Take time now to think how broad your client relationships are across your business – a reliance on one-to-one relationships can be considered a point of risk to a buyer.
All of this can be considered excellent business management – a core deliverable to firms going through my WOWW! Programme.
Planning and timing
Time is everything in planning – treating your business exit as a core element of your business plan over a number of years will allow you to control your exit and meet your objectives.
Getting your business in shape 3+ years out and defining your goals for a sale is essential to this. As is building your team of expert advisers (accountant, broker and solicitor). You wouldn’t want your clients to manage their own financial plans, nor should you embark on this without advice!
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